Passing Xenia Schools Income Tax Replacement Levy: The Bottom Line

By Daniel Downs

Xenia Community School officials want residents to agree with their plan to replace the current one-half percent income tax with a 1.5 earned income tax levy. The difference between the two is relatively simple. With the current income tax, earned compensation and unearned compensation is taxed. Earned compensation includes wages, salaries, commissions, tips, after-expenses business profits, and similar types of income. Unearned income consists of pensions, public assistance, unemployment, investment income, and similar types of income. With an earned income tax, only earned compensation is taxed.

Why do school officials want to replace the current income tax with an earned income tax? Is it to help the elderly on fixed incomes or the poor on public assistance? Do they make doing business in Xenia less costly? An earned income tax would benefit them all. However, the bottom line is not making taxation more equitable nor is to help the poor. The poor wage earner ends up with less money.

The bottom line is this: The proposed tax levy is the fast-track to a $6.4 million budget surplus in four years. Literally, this figure is the last line of the school district’s five year financial forecast. School officials apparently want to have about the same amount in the bank as they prior to the recession. In 2009, the school district had over $6 million in the bank. In 2008, the bank balance was over $5 million and $4 million in 2007. Without the new income tax levy the budget surplus is estimated to be $1.875 million in four years, which is a little less than the surplus balance reported in 2006.

Why do school officials want $6 million in the bank? One reason is state and federal banks pay interest. However, the interest usually is little more than the rate of inflation. Right now, the inflation rate is somewhere between 1-2 percent. Another reason is cash flow. Money collected from the earned income tax would get into the school district’s bank account much quicker than if another property tax was levied. Still another reason is that a fat bank account generates more money to spend with less stress. It must be stressful having to deal with increasing employee salaries and benefits as well as buying new buses, equipment, furniture, trips and other perks during a global recession.

The school district’s five year forecast appears to be based on the belief that the economy will have recovered to pre-recession levels of growth and productivity. That is not the case. No serious government economist, private sector economist or financial expert expects such a return by 2016. The Congressional Budget Office does not. Economist Nouriel Roubini sees more recessionary clouds in the American as well as global horizon. And, accountant and financial adviser Rob Clarfeld also cautions investors about the global recession.

Like many others, Congressional Budget Office economists estimate unemployment to still be 8 percent in 2015 and maybe 6.6 percent by 2016. However, it all depends on what the Europeans, U.S. Congress, and the newly elected president does. Many financial experts claim they are not actually fixing the housing, credit, and debt problems that created the economic crisis in the first place.

It should be remembered that the great depression lasted 10 years. During those years, the economy grew an annual average of a little over 1 percent with high unemployment. It looks like the liberals will achieve another 10 years of slow economic growth and high unemployment.

Again, the bottom line is that the school wants more money than it actually needs. Because of the economic uncertainty, giving the school officials all they want may prove to as problematic as two-story elementary schools. We just might get shoved down the stairs and loose all of our nickels and dimes.